Globalized World Advantages and Disadvantages
Globalized World Advantages and Disadvantages
Globalized World Advantages and Disadvantages
Economic globalization
Globalization is a term that has entered into widespread use. It involves
processes that are taking place simultaneously, and for a different people and
different interest groups it has a different meaning. The phenomenon of
1
Sanja Jelisavac Trošić, PhD, Research Fellow, Institute of International Politics and Economics,
Belgrade.
This paper was created within the project “Serbia in contemporary international relations:
Strategic directions of development and firming the position of Serbia in international integrative
processes – foreign affairs, international economic, legal and security aspects”, Ministry of
Education and Science of the Republic of Serbia, number 179029, for the period 2011–2015 and
is implemented in Institute of International Politics and Economics.
Globalized World: Advantage or Disadvantage 109
globalization goes far beyond its literal meaning with free trade, and free cultural
exchange. When it comes to economic globalization, generally accepted
definition is “the increasing integration of national economies into expanding
international markets. This expansion of markets will mean that the free
movement of goods, services, labor and capital, will result in a single global
market in inputs and outputs, so that, economically speaking, there are no
foreigners”.2 Economic integration implies integration of national economies into
a global and borderless world.
This is of course a theoretical concept of free movement of goods, services,
labor and capital and a world without borders. In reality, when it comes to such
a large and comprehensive process, it is inevitable that besides benefits it also
brings negative consequences. By comparing those two, we can get insight into
the essence of the process of economic globalization.
The positive effects of economic globalization (advantages) are:
• Increased free trade between nations
• Spread of technology
• Easier and quicker transportation of people and goods
• Increases liquidity of capital
• Builds dependencies between countries and nations allowing stronger trade ties
• Corporations have greater flexibility to operate across borders3
• Consumers get a wider variety of products to choose from, and at more
competitive prices.
• Companies are also able to procure inputs for producing goods and services
at most competitive prices.
• Companies get access to much wider markets for selling their goods and
services
• Companies can use resources of different countries for efficient and lower
cost producing goods and services
• Companies get much wider opportunities for investment
• Cost reduction by eliminating cross border duties and fees
• Higher employment generation and income generation.
The negative effects of economic globalization (disadvantages) are:
2
Defining neoliberal economic globalization, http://globalthinking20.jimdo.com/food-for-
thought/single-components/defining-neoliberal-economic-globalization/, 27/08/2015.
110 Globalized World: Advantage or Disadvantage
3
Tahir Hussain, Engineering Economics, Laxmi Publications, Ltd p. 257.
4
Keith Griffin, Economic Globalization and Institutions of Global Governance, Development and
Change, Volume 34, Issue 5, pages 789–808, November 2003. p. 792.
Globalized World: Advantage or Disadvantage 111
5
The global economy, Internet, http://www.theglobaleconomy.com/glossary/article/65/, 26/08/2015.
6
Keith Griffin, Economic Globalization and Institutions of Global Governance, Development
and Change Volume 34, Issue 5, pages 789–808, November 2003. p. 792.
7
Dreher, Axel, Noel Gaston and Pim Martens (2008), Measuring Globalisation – Gauging its
Consequences (New York: Springer), p. 22.
112 Globalized World: Advantage or Disadvantage
8
KOF Index of Globalization 2014, Internet, http://globalization.kof.ethz.ch/media/filer_
public/2014/04/15/method_2014.pdf, 12/09/2015.
9
Note: Rankings are based on raw data for the year 2012.
Globalized World: Advantage or Disadvantage 113
According to the 2015 KOF Index of Globalization, the first five most
globalized countries in the world are Ireland, Netherlands, Belgium, Austria and
Singapore. Serbia and Japan occupied similar ranks, with very close Globalization
Index (Serbia 65.49 and Japan 65.87). That is a surprising result, since both
countries are at a different level of economic development.
At global level, according to the Globalization Index, globalization in 2012
rose very little compared to the previous year. The OECD countries even recorded
a slight decline in the degree of globalization. In contrast, the Index for South
and East Asia as well as Sub-Saharan Africa rose to some extent. In all other
regions, globalization declined in 2012. According to the index of globalization
in 2011, globalization has stalled since the outbreak of the financial crisis in 2008.
The degree of globalization has declined in northern and southern Africa and in
the Near and Middle East while the index has risen slightly in East Asia. In all
other regions, globalization stagnated in 2011. The results of the economic crisis
clearly slowed down the process of worldwide globalization. This is visible in the
unchanged overall index value of the KOF Index of Globalization 2010 compared
to the previous year.10
10
KOF Index of Globalization 2015, 2014, 2013, respectivly.
11
Note: Rankings are based on raw data for the year 2012.
114 Globalized World: Advantage or Disadvantage
At table 3, we are comparing Serbia and Japan, in the last two years 2014-
2015, and their rankings at globalization. When we compare the overall
globalization index, we see that Japan is a more globalize country, but Serbia is
not much farther behind. If we analyze three components of globalization index,
we see that Serbia is much better at economic globalization, and Japan is much
better at political globalization. Therefore, we can conclude that Serbia must
advance and make efforts to achieve better results in the political field, as Japan
should do in economic one. But Japan has already been an economically strong
country, so the reasons for such bad results at index of economic globalization
are much more complex and will be explained further in the paper.
Economic globalization refers to the increasing interdependence of world
economies as a result of the growing scale of cross-border trade of commodities
and services, flow of international capital and wide and rapid spread of
Globalized World: Advantage or Disadvantage 115
Serbia
The price volatility negatively affects the stability for business and business
confidence and does not stimulate investments. Fluctuations in exchange rates
are also very poor in Serbia, because foreign investors cannot assess costs or
revenues, creating a suspicion of doing business in Serbia. Legal and legislative
reforms could be faster, although there were and still are positive developments.
All foreign investors, those who invested during the privatization process or want
to build are currently interested in the possibility of acquiring property rights on
the land for construction. However, many procedures in this area are not yet
resolved, and investors do not know how to assert their rights.14
According to the “The Global Competitiveness Report 2014-2015” from the
World Economic Forum, Serbia holds the 94th position out of 144, according to
the Global Competitiveness Index and ranking the 101st according to the Global
Competitiveness Index 2013–2014.15 These results are not very promising, and
Serbia still has much to do to improve competitiveness.
Since the year 2000, Serbia has attracted more than 24 billion euros of inward
foreign direct investments. Since the onset of economic reforms, Serbia has grown
into one of the desirable investment locations in Central and Eastern Europe.
12
Gao Shangquan, Economic Globalization: Trends, Risks and Risk Prevention, 2000, CDP
Background Paper No. 1ST/ESA/2000/CDP/1, United Nations Development Policy and
Analysis Division Department of Economic and Social Affairs, p. 3.
13
Dreher, Axel, Noel Gaston and Pim Martens (2008), Measuring Globalisation – Gauging its
Consequences (New York: Springer), p. 22.
14
Srdjan Redžepagić, Mališa Đukić, „Serbian Place in the Process of Globalization Toward the
European Integration“, in Contemporary issues in the integration proceses of Western Balkan
Countries in the European Union, Internatonal Centar for promotion of enterprises, ljubljana,
Slovenija, 2011, p. 10.
15
Klaus Schwab, World Economic Forum, “The Global Competitiveness Report 2014–2015”, Table
3: The Global Competitiveness Index 2014–2015 rankings and 2013–2014 comparisons, p. 13.
116 Globalized World: Advantage or Disadvantage
Investors from a list of leading foreign companies and banks are FIAT, Telenor,
Stada, Microsoft, Coca-Cola, Delhaize, Michelin, Gazprom, Bosch, Siemens,
Intesa Sanpaolo, Mobilkom Austria, and many others. In terms of the country
structure, as of the year 2005 investors from the European Union top the list. The
leading spot on the country list is held by Netherlands, followed by Austria,
Greece, Norway and Luxembourg, while major investor countries also include
Germany, Italy, Slovenia, and the Russian Federation. The actual amount of U.S.
investment is significantly higher than the official figure due to their companies
investing primarily through European affiliates. This also holds for Belgium,
Denmark, Israel, and a number of other countries. Over the past ten years, service
sectors have proven to be the most attractive to international investors. Banking
and insurance recorded the largest FDI inflow of 5 billion euros. Manufacturing
industries held the 2nd spot with 4.8 billion euros, followed by wholesale, retail
and repair of motor vehicles and real estate activities.16
16
Serbia Investment and Export Promotion Agency, Internet, http://siepa.gov.rs/en/index-
en/invest-in-serbia/strong-fdi-figures.html, 01/10/2015.
Globalized World: Advantage or Disadvantage 117
Results in the foreign trade from the period of the last 10 years can be seen
in the graph. Serbia is an exporter of basic metals, food products, crops, chemicals
and chemical products, rubber and plastic products and electrical equipment.
Serbia primarily exports to Germany, Bosnia and Herzegovina, Montenegro,
Romania, Russia and Macedonia.17 Serbia is an importer of chemicals and
chemical products, fuel and oil, basic metals, machinery and equipment and
motor vehicles. Serbia’s mainly imports from Russia, Germany, Italy, China and
Hungary.18 The GDP value of Serbia represents 0.07 percent of the world
economy, as reported by the World Bank.
Raising Serbia’s competitiveness is related to the improvement of factor
conditions, including specifically infrastructure and institutions. Due to the
weaknesses manifested in this segment, especially in logistic, administrative and
innovation infrastructure, Serbia has found itself almost at the tail-end of Europe.
Significant weaknesses have also been observed primarily related to the regulation
of the goods and services market, including specific antimonopoly policy, market
dominance and intensity of local competition.19
Among other changes in the Serbian institutions, fiscal and other policies
that are most important for foreign investors fell the most, and these are: property
rights, government low regulation efficiency of the judicial system, the
effectiveness of antitrust, labor and confidence in the professional management.
Unfortunately, the infrastructure issue is still one of the weakest points in the
business environment in Serbia.
Japan
According to the “The Global Competitiveness Report 2014-2015” from the
World Economic Forum, Japan moved up three ranks since the last time
measured. According to the Global Competitiveness Index Japan moved to the
6th position and was ranked the 9th according to the Global Competitiveness
Index 2013–2014. High R&D spending (2nd), excellent availability of talent (3rd),
world-class research institutions (7th), and a high capacity to innovate (7th), are
among Japan’s strengths. Indeed, in terms of innovation output, these strengths
pay off: the country has the second-highest number of patent applications per
17
Trading Economics, http://www.tradingeconomics.com/serbia/exports, 01/10/2015.
18
Trading Economics, http://www.tradingeconomics.com/serbia/imports, 01/10/2015.
19
Nebojša Savić, “Comparative Analysis Based on New Competitiveness Index“, Panoeconomicus,
2012, 1, p. 112.
118 Globalized World: Advantage or Disadvantage
capita in the world. Further, companies operate at the highest end of the value
chain, producing high-value-added goods and services.20 The GDP value of Japan
represents 7.42 percent of the world economy.
Exports of high technology products have been the engine of Japan’s
economic growth since 1960. In 2013 main exports were: transportation
equipment (23 percent of total exports) with transport vehicles accounting for
15 percent; machinery (19 percent); electrical machinery (17 percent); chemicals
(11 percent) and manufactured goods (13 percent). Japan’s main export partners
are: the United States (18.5 percent), China (18 percent), South Korea (7 percent)
and Taiwan (6 percent).21 Japan main imports are: mineral fuels (34 percent of
total imports) with petroleum accounting for 18 percent, machinery (21 percent),
food (8 percent), manufactured goods (8 percent), chemicals (8 percent) and raw
materials (7 percent). From March of 2011, Japan’s import of fuels has surged due
to the closure of the nuclear plants. Japan’s main import partners are China (22
percent), the United States (8 percent), Saudi Arabia (6 percent), United Arab
Emirates (5 percent) and Qatar (4.5 percent).22
Japanese companies have invested all over the world and Japanese export,
especially high tech export, is present all over the world. Looking at the data one
could conclude that Japan is among the most globalized countries in the world.
But according to the OECD Japan is perhaps the least globalized of its 30 member
countries. In the trade and investment areas, Japan’s barriers at the border are not
so high, except for the appalling case of agriculture (agriculture protection is
almost twice the OECD average). It turns out that the real barriers between Japan
and the rest of the world are behind-the-border barriers like product and labor
market regulations, and rules limiting cross-border M&As.23
Taking trade, investment and migration barriers together, Japan seems to be
almost against globalization. Much of today’s globalization revolves around
global production systems for which multinational enterprises need the freedom
to invest, trade (especially intra-firm trade) and hire foreign workers. And by
blocking the lot, Japan has created a vicious circle. There is no country that needs
globalization more than Japan. With its ageing and declining population, Japan
20
Klaus Schwab, World Economic Forum, “The Global Competitiveness Report 2014–2015”,
Table 3: The Global Competitiveness Index 2014–2015 rankings and 2013–2014 comparisons,
p. 13.
21
Trading Economics, http://www.tradingeconomics.com/japan/exports, 01/10/2015.
22
Trading Economics, http://www.tradingeconomics.com/japan/imports, 01/10/2015.
23
Randall S. Jones and Taesik Yoon, “Strengthening the integration of Japan in the world economy
to benefit more fully from globalization”, Economics Department, Working Paper No. 526.
Globalized World: Advantage or Disadvantage 119
needs to boost productivity to maintain its prosperity. And FDI can do that. In
addition, the migration can be very helpful in filling labor shortages, particularly
for health care where demand is growing rapidly due to population ageing.
Overall, one is tempted to conclude that Japan has practiced one-sided
globalization - exporting more than importing and investing massively overseas
but blocking inward investment.24
The quest for natural resources draws many companies in international
markets. Japan, is a small, densely populated island nation with very few natural
resources of its own. For example, to access cheaper energy resources used in
manufacturing, a variety of Japanese firms are relocating production to China
and Vietnam, where energy costs are lower. Japan’s largest paper company, owns
huge forests and corresponding processing facilities in Australia, Canada, and
the United States.25 That is all the result of economic globalization and the positive
results of relocation of production.
Conclusions
There was a time when locally produced foods, fuels and raw materials were
generally processed for local consumption and most of the regions were
economically self-sufficient. At those times, trade between different regions was
quite limited. Today is much different, the economies of most countries are so
interconnected that they form part of a single, interdependent global economy.
Globalization has brought some positive and some negative effects. Trade
and commerce are areas where globalization has brought many changes, and
there has been a considerable degree of liberalization. But even there, benefits of
globalization have been distributed inequitably. Today, and for many years
behind, it is still present a process of continuing discrimination against products
of particular importance to low income countries. Also, the process of
liberalization has generally occurred much more slowly in the cases of foodstuffs,
textiles, clothing, leather products and footwear. The lees developed countries
are at a disadvantage and they were not being able to bear fruits of all positive
effects of the process of globalization.
For the positive effects of globalization to be fully used, especially when it
comes to one transition country as Serbia represent, far and most important is
24
Japan’s globalization, Internet, http://www.mrglobalization.com/globalisation-winners/337-
japans-globalization, 10/09/2015.
25
Global business environment, Globalization, p. 8.
120 Globalized World: Advantage or Disadvantage
to change and adapt policies and rules of the state that will attract FDI. It is
important, especially for the consumers, to allow a competitive market
environment, and to allow the entry of new firms in the market. Serbia should
be a country in which foreign companies want to do business.
Japan is a developed country and it has long been a trading nation with a
strong economy. As far as globalization goes, Japan has practiced one-sided
globalization, which means that it has been exporting more than importing, and
also investing overseas in the large amount, but obstructing inward investment.
In the future, Japan should continue to actively introduce favorable factors and
mechanisms that can work as an engine for new development, while positively
using the dynamism of the globalizing world economy.
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